<PAGE>   1
================================================================================

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                 For the transition period from ______ to ______

                         Commission File Number: 0-28480

                                EDIFY CORPORATION
             (Exact name of Registrant as specified in its charter)

          DELAWARE                                              77-0250992
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)



                            2840 SAN TOMAS EXPRESSWAY
                          SANTA CLARA, CALIFORNIA 95051
                    (Address of principal executive offices)

                       ---------------------------------
                                 (408) 982-2000
              (Registrant's telephone number, including area code)

                       ---------------------------------

Indicate by checkmark whether the Registrant: (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                          (1)   Yes   X     No
                                    -----     ----


As of September 30, 1997, there were 16,525,425 shares of the Registrant's
common stock outstanding.


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<PAGE>   2

EDIFY CORPORATION
FORM 10-Q
INDEX


<TABLE>
<CAPTION>
                                                                                 PAGE
PART I         FINANCIAL INFORMATION                                            NUMBER
<S>            <C>                                                              <C>
ITEM 1:        Financial Statements

               Condensed Balance Sheets as of September 30, 1997 and December
                  31, 1996....................................................     3

               Condensed Statements of Operations for the three and nine
                  months ended September 30, 1997 and 1996....................     4

               Condensed Statements of Cash Flows for the nine months ended
                  September 30, 1997 and 1996.................................     5

               Notes to Condensed Financial Statements........................     6

ITEM 2:        Management's Discussion and Analysis of Financial Condition
                  and Results of Operations...................................     8

ITEM 3:        Quantitative and Qualitative Disclosures About Market Risk.....    16


PART II        OTHER INFORMATION

ITEM 1:        Legal Proceedings..............................................    16

ITEM 2:        Changes in Securities..........................................    16

ITEM 3:        Defaults Upon Senior Securities................................    16

ITEM 4:        Submission of Matters to a Vote of Security Holders............    16

ITEM 5:        Other Information..............................................    16

ITEM 6:        Exhibits and Reports on Form 8-K...............................    16

               Signatures.....................................................    17

</TABLE>


                                      -2-
<PAGE>   3


PART I:  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS



                                EDIFY CORPORATION

                            CONDENSED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,   DECEMBER 31,
                                                           1997            1996
                                                      ---------------  -------------
                                                        (UNAUDITED)       (AUDITED)
<S>                                                       <C>           <C>     
                        ASSETS
Current assets:
   Cash, cash equivalents and short-term investments      $ 43,662      $ 44,840
   Accounts receivable, net .........................       13,851         8,837
   Prepaid expenses and other current assets ........        1,502         1,020
                                                          --------      --------

        Total current assets ........................       59,015        54,697
Property and equipment, net .........................        6,936         5,790
Other assets ........................................          234           234
                                                          --------      --------

        Total assets ................................     $ 66,185      $ 60,721
                                                          ========      ========


         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable .................................     $  1,193      $  1,544
   Current installments of capital lease obligations           414           404
   Accrued expenses .................................        5,469         5,128
   Unearned revenue .................................        4,447         3,751
                                                          --------      --------
        Total current liabilities ...................       11,523        10,827
                                                          --------      --------
Capital lease obligations, excluding current           
   installments ....................................           449           707
Commitments and contingencies
Stockholders' equity:
   Common stock .....................................           16            16
   Additional paid-in capital .......................       66,480        64,208
   Deferred compensation and other ..................         (244)         (445)
   Accumulated deficit ..............................      (12,039)      (14,592)
                                                          --------      --------
        Total stockholders' equity ..................       54,213        49,187
                                                          --------      --------
        Total liabilities and stockholders' equity ..     $ 66,185      $ 60,721
                                                          ========      ========

</TABLE>


See notes to condensed financial statements.



                                      -3-
<PAGE>   4

                                EDIFY CORPORATION

                       CONDENSED STATEMENTS OF OPERATIONS
                (IN THOUSANDS, EXCEPT PER SHARE DATA: UNAUDITED)


<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED          NINE MONTHS ENDED
                                                 SEPTEMBER 30,               SEPTEMBER 30,
                                            ----------------------     ---------------------
                                              1997         1996           1997        1996
                                            ---------    ---------     ---------    --------
<S>                                         <C>          <C>           <C>          <C>     
Net revenues:
  License .............................     $  8,742     $  5,356      $ 23,681     $ 13,532
  Services and other ..................        5,478        3,705        16,386        8,259
                                            --------     --------      --------     --------
    Total net revenues ................       14,220        9,061        40,067       21,791
Cost of license revenues ..............          162          138           498          338
Cost of services and other revenues ...        4,136        3,026        12,787        6,968
                                            --------     --------      --------     --------
    Gross profit ......................        9,922        5,897        26,782       14,485
                                            --------     --------      --------     --------
Operating expenses:
  Product development .................        2,721        1,527         7,330        3,997
  Sales and marketing .................        5,329        4,022        14,803       10,450
  General and administrative ..........        1,160          845         3,342        1,980
                                            --------     --------      --------     --------
    Total operating expenses ..........        9,210        6,394        25,475       16,427
                                            --------     --------      --------     --------
    Income (loss) from operations .....          712         (497)        1,307       (1,942)
Interest income, net ..................          476          534         1,470          936
                                            --------     --------      --------     --------
    Income (loss) before income taxes .        1,188           37         2,777       (1,006)
Provision for income taxes ............           95           --           224            8
                                            --------     --------      --------     --------
    Net income (loss) .................     $  1,093     $     37      $  2,553     $ (1,014)
                                            ========     ========      ========     ========
Net income (loss) per share ...........     $   0.06     $   0.00      $   0.14     $  (0.07)
                                            ========     ========      ========     ========
Shares used in computing net income
  (loss) per share ....................       18,137       18,000        18,011       14,921
                                            ========     ========      ========     ========
</TABLE>

See notes to condensed financial statements.



                                      -4-
<PAGE>   5


                                EDIFY CORPORATION

                       CONDENSED STATEMENTS OF CASH FLOWS
                            (IN THOUSANDS: UNAUDITED)


<TABLE>
<CAPTION>
                                                                       NINE MONTHS ENDED SEPTEMBER 30,
                                                                       -------------------------------
                                                                             1997          1996
                                                                           --------      --------
<S>                                                                        <C>           <C>      
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss) .................................................     $  2,553      $ (1,014)

   Adjustments to reconcile net loss to net cash provided by operating
      activities:
     Depreciation and amortization ...................................        2,332         1,040

     Provision for returns and doubtful accounts .....................          589           888

     Amortization of deferred compensation ...........................          201           349

     Changes in operating assets and liabilities:
       Accounts receivable ...........................................       (5,603)       (2,677)

       Prepaid expenses and other current assets .....................         (482)         (599)

       Accounts payable ..............................................         (351)          407

       Accrued expenses ..............................................          341         1,640

       Unearned revenue ..............................................          696         1,341
                                                                           --------      --------

         Net cash provided by operating activities ...................          276         1,375
                                                                           --------      --------


CASH FLOWS FROM INVESTING ACTIVITIES
   Purchases of property and equipment, net ..........................       (3,443)       (3,331)

   Purchases of short-term investments ...............................       (6,391)      (19,418)

   Sales and maturities of short-term investments ....................       11,999        15,913

   Other assets ......................................................           --          (144)
                                                                           --------      --------

         Net cash provided by (used in) investing activities .........        2,165        (6,980)
                                                                           --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES
   Principal payments under capital lease obligations ................         (283)         (291)

   Net proceeds from issuance of common stock ........................        2,272        39,019
                                                                           --------      --------

         Net cash provided by financing activities ...................        1,989        38,728
                                                                           --------      --------

Increase in cash and cash equivalents ................................        4,430        33,123

Cash and cash equivalents at beginning of period .....................       33,704         1,182
                                                                           --------      --------

Cash and cash equivalents at end of period ...........................     $ 38,134      $ 34,305
                                                                           ========      ========


Supplemental schedule of cash flow information:
   Cash paid during the period for interest ..........................     $     93      $     95

   Cash paid during the period for taxes .............................     $     87      $      8

Supplemental schedule of noncash investing and financing activities:
   Property and equipment acquired under capital lease obligations....     $     35      $    605
      
   Accrual of stock option deferred compensation .....................     $     --      $    303

</TABLE>


See notes to condensed financial statements.



                                      -5-
<PAGE>   6

                                EDIFY CORPORATION

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


(1)     BASIS OF PRESENTATION

        The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles and, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary to fairly state the Company's
financial position, results of operations, and cash flows for the periods
presented. These financial statements should be read in conjunction with the
Company's audited financial statements included in the Company's Form 10-K for
the fiscal year ended December 31, 1996. The results of operations for the
three- and nine-month periods ended September 30, 1997 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
entire fiscal year ending December 31, 1997. The December 31, 1996 balance sheet
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.

(2)     NET INCOME (LOSS) PER SHARE

        Net income (loss) per share is computed based upon the weighted average
number of shares of common stock outstanding and common equivalent shares from
stock options (under the treasury stock method, if dilutive).

        For the nine months ended September 30, 1996, net loss per share is
computed based on the weighted average number of shares of common stock
outstanding and common equivalent shares from stock options (under the treasury
stock method, if dilutive) and preferred stock outstanding (on an "as if
converted" basis, even if antidilutive). In accordance with certain SEC Staff
Accounting Bulletins, this computation includes all common and common equivalent
shares (using the treasury stock method) issued within 12 months of the
Company's initial public offering on May 2, 1996 as if they were outstanding for
all periods prior to the initial public offering using the initial public
offering price.

        In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." SFAS
No. 128 requires the presentation of basic earnings per share ("EPS") and, for
companies with potentially dilutive securities, such as options and warrants,
diluted EPS. SFAS No. 128 is effective for annual and interim periods ending
after December 15, 1997. The Company expects that basic EPS for profitable
periods will be higher than primary earnings per share as presented in the
accompanying financial statements and that diluted EPS for profitable periods
will not differ materially from primary earnings per share as presented in the
accompanying financial statements. Computations for loss periods should not
change significantly.



                                      -6-
<PAGE>   7

(3)     INVESTMENTS

        Under the provisions of SFAS No. 115, debt and equity securities
classified as available-for-sale securities for which cost approximated market
value as of September 30, 1997 and December 31, 1996, with maturities generally
within one year, consisted of the following (in thousands):

<TABLE>
<CAPTION>
                               SEPTEMBER 30, DECEMBER 31, 
                                  1997        1996
                                 -------     -------
<S>                              <C>         <C>    
Government agency securities     $ 9,840     $ 8,374
Commercial paper ...........      10,296       8,172
Corporate bonds ............       1,376       4,058
                                 -------     -------
                                 $21,512     $20,604
                                 =======     =======
</TABLE>

Gains and losses from sales of available-for-sale securities were not
significant for the three or nine month periods ended September 30, 1997 and
1996.

(4)     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

        In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the statement, but requires the
Company to display an amount representing total comprehensive income for the
period in that financial statement. The Company is in the process of determining
its preferred format. This Statement is effective for fiscal years beginning
after December 15, 1997.

        Also in June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." The Statement establishes
standards for the manner in which public business enterprises report information
about operating segments in annual financial statements and requires those
enterprises to report selected information about operating segments in interim
financial reports issued to shareholders. This Statement is effective for
financial statements for periods beginning after December 15, 1997, and the
Company has not yet determined the impact of adopting its disclosure
requirements.



                                      -7-
<PAGE>   8


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS


        This Form 10-Q contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those indicated by the forward-looking statements herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
set forth below in "Factors That May Affect Future Operating Results" as well as
those discussed in the "Business Risks" section included in the Company's Form
10-K for the fiscal year ended December 31, 1996.

RESULTS OF OPERATIONS

NET REVENUES

        Total net revenues were $14.2 million for the quarter ended September
30, 1997 as compared to $9.1 million for the comparable 1996 quarter,
representing an increase of 56.9%. Total net revenues were $40.1 million for the
nine months ended September 30, 1997, an increase of 83.9% as compared to $21.8
million for the same period a year ago. The Company's revenues are principally
derived from software licenses and fees for services, which generally are
charged separately. Revenues are recorded net of reserves for potential product
returns and credit losses, neither of which have been significant to date. In
the three- and nine-month periods ended September 30, 1997 and 1996, 5% or less
of the Company's total net revenues were derived from international sales. Over
time, the Company intends to expand its operations outside of the United States
and enter additional international markets. International operations entail a
number of risks including those associated with product customization and
regulatory compliance, and there can be no assurance that such expansion will be
successful.

        LICENSE REVENUES. License revenues were $8.7 million for the quarter
ended September 30, 1997 as compared to $5.4 million for the comparable 1996
quarter. License revenues for the nine-month period ended September 30, 1997
were $23.7 million as compared to $13.5 million for the comparable period in
1996. The increases in license revenues were attributable to several factors,
including an increase in unit volume as a result of the market's growing
awareness and acceptance of Electronic Workforce and Electronic Banking System,
generally higher prices of Electronic Banking System licenses as compared with
Electronic Workforce, revenues from Employee Service System (introduced in June
1997), and expansion of the Company's field sales force and indirect
distribution channels. The prices of the Company's Electronic Workforce licenses
have remained relatively constant during the comparable periods of 1997 and
1996. The Company does not believe that the historical growth rates of license
revenues will be sustainable or are indicative of future results.



                                      -8-
<PAGE>   9

        SERVICES AND OTHER REVENUES. Services and other revenues consist
primarily of fees from consulting, post-contract customer support and, to a
lesser extent, training and installation services. Services and other revenues
were $5.5 million for the quarter ended September 30, 1997 as compared to $3.7
million for the comparable 1996 quarter. Services and other revenues for the
nine months ended September 30, 1997 were $16.4 million as compared to $8.3
million for the comparable period of 1996. Services and other revenues as a
percentage of total net revenues decreased to 38.5% for the quarter ended
September 30, 1997, from 40.9% for the quarter ended September 30, 1996, and
increased to 40.9% for the nine months ended September 30, 1997 from 37.9% for
the comparable 1996 period. The increases in services and other revenues in
absolute dollars, and as a percentage of total net revenues for the comparable
nine-month periods, occurred primarily due to increased demand for consulting
services, as well as increases in post-contract customer support, training and
installation services associated with the increased volume of licenses of the
Company's software. The decrease in services and other revenues as a percentage
of total net revenues for the three-month period resulted primarily from the
dedication of personnel to non-revenue generating services and training related
to the development of versions of the Company's software for the Windows NT
operating system, as well as proportionately higher license revenues associated
with sales of the application products. Consulting services primarily are
contracted for under time and material arrangements. The Company does not
believe that the historical growth rates of services revenues will be
sustainable or are indicative of future results. To the extent services and
other revenues is a higher percentage of total net revenues, overall gross
profit margins may be adversely impacted.

COST OF REVENUES

        COST OF LICENSE REVENUES. Cost of license revenues consists primarily of
the cost of product media, product duplication, documentation and royalties paid
to third parties under technology licenses. Cost of license revenues was
$162,000 and $138,000 for the quarters ended September 30, 1997 and 1996,
representing 1.9% and 2.6% of the related license revenues for the respective
quarters. Cost of license revenues was $498,000 for the nine months ended
September 30, 1997 as compared to $338,000 for the comparable 1996 period,
representing 2.1% and 2.5% of the related license revenues for the respective
periods. The decrease in cost of license revenues as a percentage of license
revenues from 1996 to 1997 was due to increased license revenues coupled with
decreased material costs. If the Company were required to obtain licenses from
third parties under patent or other intellectual property rights, the cost of
license revenues could increase significantly.

        COST OF SERVICES AND OTHER REVENUES. Cost of services and other revenues
consists primarily of personnel-related costs and fees for third-party
consultants incurred in providing consulting, post-contract customer support,
training and installation services to customers. Cost of services and other
revenues was $4.1 million and $3.0 million for the quarters ended September 30,
1997 and 1996, representing 75.5% and 81.7% of the related services and other
revenues for the respective quarters. Cost of services and other revenues was
$12.8 million for the nine months ended September 30, 1997 as compared to $7.0
million for the comparable 1996 period, representing 78.0% and 84.4% of the
related services and other revenues for the respective periods. The increases in
absolute dollars for the comparable




                                      -9-
<PAGE>   10
quarterly periods were due primarily to increases in personnel-related costs as
the Company continued to expand its consulting, customer support, training and
installation services organizations. The cost of services and other revenues as
a percentage of services and other revenues may vary between periods due to the
amount and mix of services provided by the Company and to varying levels of
expenditures to build the services organizations. Any significant decline in the
demand for the Company's consulting services would have a material adverse
impact on the Company's revenues and, as a result of the under-utilization of
consulting personnel, on the Company's gross profit and results of operations.

PRODUCT DEVELOPMENT

        Product development expenses were $2.7 million and $1.5 million, or
19.1% and 16.9% of total net revenues, for the quarters ended September 30, 1997
and 1996, respectively. Product development expenses were $7.3 million and $4.0
million for the nine-month periods ended September 30, 1997 and 1996,
representing 18.3% of total net revenues for each period. Product development
expenses consist primarily of salaries and other related expenses for research
and development personnel, as well as the cost of facilities and depreciation of
capital equipment. The increases in absolute dollars for the comparable periods,
as well as the increase in the percentage of total net revenues for the
three-month period, were attributable primarily to increased staffing related to
the development of versions of the Company's software to run on Windows NT,
development of application products and ongoing enhancements to Electronic
Workforce. The Company believes that significant investments in product
development are required to remain competitive. As a result, the Company expects
that product development expenses will increase in absolute dollars in the
future and will not decline significantly as a percentage of total net revenues
from their current levels. The failure to develop and introduce Windows NT
versions of the application products on a timely basis would have a material
adverse affect on the Company's business and results of operations.

        In accordance with Statement of Financial Accounting Standards No. 86,
the Company capitalizes eligible computer software development costs upon the
achievement of technological feasibility, subject to net realizable value
considerations. The Company has defined technological feasibility as completion
of a working model. To date, such capitalizable costs have not been material.
Accordingly, the Company has charged all such costs to product development
expenses in the accompanying statements of operations.

SALES AND MARKETING

        Sales and marketing expenses were $5.3 million and $4.0 million, or
37.5% and 44.4% of total net revenues, for the quarters ended September 30, 1997
and 1996, respectively. Sales and marketing expenses were $14.8 million and
$10.5 million, or 36.9% and 48.0% of total net revenues, for the nine-month
periods ended September 30, 1997 and 1996, respectively. Sales and marketing
expenses consist primarily of salaries and commissions earned by sales and
marketing personnel and promotional expenses. The increases in absolute dollars
for the comparable periods were due primarily to the expansion of the Company's
field and indirect sales operations and increased marketing activities. The



                                      -10-
<PAGE>   11

reductions in sales and marketing expenses as a percentage of total net revenues
were due primarily to the growth in total net revenues. The Company expects to
continue to expand its field sales and marketing efforts, its third party value
added reseller ("VAR") distribution channel and its operations outside the
United States and, therefore, anticipates that sales and marketing expenditures
will increase in absolute dollars in the future. In addition, sales and
marketing expenses as a percentage of total net revenues may fluctuate between
periods due to varying levels of expenditures to build the sales and marketing
organizations.

GENERAL AND ADMINISTRATIVE

        General and administrative expenses were $1.2 million and $845,000, or
8.2% and 9.3% of total net revenues, for the quarters ended September 30, 1997
and 1996, respectively. General and administrative expenses were $3.3 million
and $2.0 million, or 8.3% and 9.1% of total net revenues, for the nine months
ended September 30, 1997 and 1996, respectively. General and administrative
expenses consist primarily of salaries and other related expenses of
administrative, executive and financial personnel and outside professional fees.
The increases in absolute dollars for the comparable periods were attributable
primarily to the addition of staff and increased costs associated with expansion
of information systems to support the growth of the Company's business. The
Company expects to continue to expand its staffing, information systems and
other items related to infrastructure and, therefore, anticipates that general
and administrative expenditures will increase in absolute dollars in the future.

INTEREST INCOME, NET

        Interest income, net was $476,000 and $534,000 for the quarters ended
September 30, 1997 and 1996, respectively. Interest income, net for the nine
months ended September 30, 1997 and 1996 was $1.5 million and $936,000,
respectively. The decrease from 1996 to 1997 for the comparable three-month
period was due primarily to lower interest rates. The increase for the
comparable nine-month period was due primarily to increases in average
investment balances as a result of the investment of the proceeds from the
Company's initial public offering in May 1996.

PROVISION FOR INCOME TAXES

        The provision for income taxes was $95,000 and $0 for the quarters ended
September 30, 1997 and 1996, respectively. The provision for income taxes was
$224,000 and $8,000 for the nine months ended September 30, 1997 and 1996,
respectively. For the three and nine months ended September 30, 1997, income
taxes have been provided based upon an estimated annualized effective tax rate
of 8% applied to earnings for the period, primarily reflecting the benefit of
available net operating loss carryforwards.



                                      -11-
<PAGE>   12

LIQUIDITY AND CAPITAL RESOURCES

        From inception through April 1996, the Company financed its operations
and met its capital expenditure requirements primarily through the private sales
of preferred stock, totaling $24.1 million. On May 2, 1996, the Company
completed its initial public offering of 2,875,000 shares of its common stock at
a price of $15.00 per share. Proceeds to the Company from this offering were
approximately $38.9 million, net of underwriting discounts and other offering
costs. At September 30, 1997, the Company's cash, cash equivalents and
short-term investments (short-term, interest-bearing, investment-grade
securities) totaled $43.7 million.

        At September 30, 1997, the Company also had available an $8.0 million
unsecured revolving bank line of credit agreement which expires in December 1997
and contains certain financial covenants, with which the Company was in
compliance. Borrowings accrue interest at the bank's prime rate. As of September
30, 1997, there were no borrowings outstanding under this line of credit.

        For the nine months ended September 30, 1997, operating activities
provided cash of $276,000, resulting primarily from increases in net income and
depreciation and amortization, partially offset by an increase in accounts
receivable. Investing activities provided cash of $2.2 million from the net sale
of $5.6 million in short-term investments, partially offset by the purchase of
$3.4 million in property and equipment. The Company expects that its capital
expenditures will increase as the Company's employee base grows. Net cash
generated from financing activities of $2.0 million was related primarily to
proceeds from the issuance of the Company's common stock through its Employee
Stock Purchase Plan and stock option exercises.

        At September 30, 1997, the Company's working capital was $47.5 million.
The Company has no significant capital spending or purchase commitments other
than normal purchase commitments and commitments under its operating and capital
leases. The Company believes that its working capital, together with its bank
line of credit and anticipated cash flows from operations, if any, will be
sufficient to meet its working capital and capital expenditure requirements for
at least the next twelve months.


FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

        Except for the historical information contained in this Form 10-Q, the
matters discussed herein are forward-looking statements. These forward-looking
statements concern matters which include, but are not limited to, the
sustainability of historical revenue growth rates, the Company's expected mix of
revenues, expected gross margins on license revenues and services and other
revenues, certain expected operating expense levels and the Company's liquidity
and capital needs. These matters involve risks and uncertainties that could
cause actual results to differ materially from those in the forward-looking
statements. The revenue levels, results of operations and growth rates achieved
during the quarter and nine months ended September 30, 1997 are not necessarily
indicative of the results that may 



                                      -12-
<PAGE>   13

be achieved in any future period. There can be no assurance that the Company
will sustain profitability or experience growth in revenues in any future
quarter. The Company's revenues, margins and operating results have fluctuated
in the past, and are expected to continue to fluctuate in the future, on an
annual and quarterly basis as a result of a number of factors, such as demand
for the Company's products, including new products and product enhancements, the
mix of products and services sold, the mix of distribution channels through
which the Company's products are sold, customer order deferrals in anticipation
of new products, purchasing patterns of value added resellers and customers,
Company decisions regarding hiring and other expenses and competitive conditions
in the industry. In particular, the Company plans to increase its operating
expenses to expand its sales and marketing operations, expand its distribution
channels, expand its international operations, fund greater levels of product
development, broaden its consulting services and customer support capabilities
and increase its administrative infrastructure. A relatively high percentage of
the Company's expenses is fixed in the short term as the Company's expense
levels are based, in part, on its expectations as to future revenues. If
revenues fall below expectations, expenditure levels could be disproportionately
high as a percentage of total net revenues, and operating results would be
immediately and adversely affected.

        The Company historically has operated with little backlog because its
products are generally shipped as orders are received. As a result, license
revenues in any quarter depend on the volume and timing of, and the Company's
ability to fill, orders received in that quarter. Individual orders for the
Company's products typically are for relatively large dollar amounts. The
Company also believes the purchase of its products is relatively discretionary
and generally involves a significant commitment of capital resources. Therefore,
any downturn in any potential customer's business, or any loss or delay of
individual orders for any reason, would have a significant impact on the
Company's revenues and quarterly results. In addition, because the Company
typically recognizes a substantial portion of its total revenue from
transactions booked and shipped in the last weeks, or even days, of the quarter,
the magnitude of quarterly fluctuations may not become evident until very late
in a particular quarter. Revenues are difficult to forecast because the market
for the Company's products is rapidly evolving.

        Based upon all of the foregoing, the Company believes that its quarterly
revenues, expenses and operating results could vary significantly in the future
and that period-to-period comparisons should not be relied upon as indications
of future performance. There can be no assurance that the Company will be able
to grow in future periods or that it will be able to sustain its level of total
net revenues or its rate of revenue growth on a quarterly or annual basis. It is
likely that, in some future quarters, the Company's operating results will be
below the expectations of stock market analysts and investors. In such event,
the price of the Company's common stock could be materially adversely affected.

        The Company's future success will depend on its ability to design,
develop, test, sell and support new software products and enhancements of
current products on a timely basis in response to changing customer needs,
competition, technological developments and emerging industry standards. As of
September 30, 1997, all versions of the Company's software products ran on IBM
Corporation's OS/2 operating system. The Company believes 



                                      -13-
<PAGE>   14

that some potential customers will not license the Company's products that run
on the OS/2 operating system. Accordingly, in October, 1997, the Company
released Electronic Workforce Release 5, which operates on the Microsoft Windows
NT operating system. The Company also is developing versions of its applications
products for Windows NT. There can be no assurance that Electronic Workforce
Release 5 will achieve customer acceptance. In addition, it is possible that the
Company's intention to develop Windows NT-based versions of its application
products will cause potential customers to defer or forgo purchases of current
or future versions of these products, which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company's future success will depend upon the timely and successful completion
of these products with an adequate level of performance and functionality. There
can be no assurance that the Company will be successful in developing, on a
timely basis or at all, fully functional Windows NT-based versions of its
application products or that such versions, if developed, will achieve customer
acceptance. Failure by the Company to develop Windows NT-based versions
successfully and in a timely manner would have a material adverse effect on the
Company's business, financial condition and results of operations.

        In March 1996, the Company received a letter from Syntellect Technology
Corporation ("Syntellect") inviting the Company to negotiate a license of
certain of Syntellect's patents. Since then, Syntellect has called additional
Syntellect patents to the Company's attention. Based on its investigation of the
patents referenced in Syntellect's March 1996 letter, the Company believes that
it has substantial arguments that it does not violate any valid claims of such
Syntellect patents.

        In April 1996, the Company received a letter from Lucent Technologies
Inc. ("Lucent") inviting the Company to negotiate a license of Lucent's patents.
Since then, Lucent has asserted that it believes that certain of the Company's
products infringe certain of Lucent's patents and has offered to license those
patents to the Company for a substantial payment. Lucent and the Company are
discussing Lucent's assertions. Lucent is examining other patents it holds to
determine whether to make further assertions to the Company. Based on its
investigation of the patents referenced in Lucent's April 1996 letter, the
Company believes that it has substantial arguments that it does not violate any
valid claims of such Lucent patents.

        There can be no assurance, however, that the Company will not be found
to infringe any of the patents identified by Syntellect or Lucent. If the
Company is required to seek licenses on any of these patents, there can be no
assurance that the costs associated with such licenses, if available, would not
have a material adverse effect on the Company's business, financial condition or
results of operations. In the event that the Company cannot come to an agreement
with these parties, the Company may be drawn into litigation with such parties.
There can be no assurance that the costs associated with participating in or
settling such litigation would not have a material adverse effect on the
Company's business, financial condition or results of operations. In the future,
the Company may receive additional communications from these or other parties
asserting that the Company's products, trademarks or other proprietary rights
require a license of intellectual property 



                                      -14-
<PAGE>   15

rights or infringe, or may infringe, on their property rights. As the number of
software products in the industry increases, and the functionality of these
products further overlaps, the Company believes that software developers may
become increasingly subject to infringement claims. Any such claims, with or
without merit, could be time consuming, result in costly litigation, cause
product shipment delays or require the Company to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may not
be available on terms acceptable to the Company, or at all, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

        An integral part of the Company's strategy is to develop multiple
distribution channels, including a field sales force, VARs and OEMs. The Company
intends to increase its reliance on third-party distribution partners in the
future. The Company is expending and intends to continue to expend significant
resources to develop the VAR channel. VARs and OEMs are not, however, subject to
any minimum purchase or resale requirements and can cease marketing the
Company's products at any time. Certain VARs and OEMs may offer competing
products that they produce or that are produced by third parties. There can be
no assurance that the Company's existing VARs will continue to provide the level
of services and technical support necessary to provide a complete self service
solution to the Company's customers or that they will not emphasize their own or
third-party products to the detriment of the Company's products. The loss of
VARs, the failure of such parties to perform under agreements with the Company
or the inability of the Company to attract and retain new VARs with the
technical, industry and application expertise required to market the Company's
products successfully in the future could have a material adverse effect on the
Company's business, financial condition and results of operations. To the extent
that the Company is successful in increasing its sales through VARs, those sales
will be at discounted rates, and revenue to the Company for each such sale will
be less than if the Company had licensed the same products to the customer
directly.

        In addition to the factors discussed above, among the other factors that
could cause actual results to differ materially are the following: demand for
and market acceptance of application products; the Company's ability to deliver
on time, and market acceptance of, new products or upgrades of existing
products; customer order deferrals in anticipation of new products; the timing
of, or delay in, large customer orders; continued availability of technology and
intellectual property license rights; changes in the mix of distribution
channels through which the Company's products are offered; competitive
conditions in the industry; risks associated with global operations; general
economic conditions; and the "Business Risks" listed from time to time in
reports that the Company files with the U.S. Securities and Exchange Commission,
including but not limited to the Company's Form 10-K for the fiscal year ended
December 31, 1996.



                                      -15-
<PAGE>   16


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Not applicable.



PART II.   OTHER INFORMATION




ITEM 1.   LEGAL PROCEEDINGS

        None.

ITEM 2.   CHANGES IN SECURITIES

        Not applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

        Not applicable.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

ITEM 5.   OTHER INFORMATION

        Not applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K


        (a) The following exhibits are being filed as part of this Report:

               11.01  Statement of Net Income (Loss) Per Share

               27.01  Financial Data Schedule

        (b) Reports on Form 8-K:

               No report on Form 8-K has been filed for the quarterly period
               ended September 30, 1997.



                                      -16-
<PAGE>   17


SIGNATURES


      Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                              EDIFY CORPORATION




Date: November 13, 1997       By:   /s/  Stephanie A. Vinella
                                  ---------------------------
                                   Stephanie A. Vinella
                                   Vice President of Finance and Administration,
                                   Chief Financial Officer and Secretary



                                      -17-
<PAGE>   18

EDIFY CORPORATION
FORM 10-Q
EXHIBIT INDEX


               EXHIBITS


11.01          Statement of Net Income (Loss) Per Share

27.01          Financial Data Schedule